CSS Current Affairs | Role of IPPs in Aggravating the Energy Crisis
The following question of CSS Current Affairs is solved by Dr Arzoo Fatima under the supervision of Howfiv’s Pakistan Affairs and Current Affairs Coaches. She learnt how to attempt 20 marks question and essay writing from Sir Syed Kazim Ali, Pakistan’s best CSS and PMS English essay and precis teacher with the highest success rate of his students. This solved past paper question is attempted on the pattern taught by Sir to his students, scoring the highest marks in compulsory and optional subjects for years, and uploaded to help aspirants understand how to crack a topic or question, how to write relevantly, what coherence is, and how to include and connect ideas, opinions, and suggestions to score the maximum.
Outline
1- Introduction
2- Understanding the term IPPs
3- Discuss the role of IPPs in aggravating the energy crisis in Pakistan.
3.1- Negative Role of IPPs
- ✓IPPS contributed to increasing tariffs on electricity, resulting in huge losses for WAPDA
- Evidence: According to the National Development Authority, currently, practicality turned into a huge gap between the cost price of electricity
- ✓The IPPs have not been able to meet the overall energy production requirements, leading to energy crisis
- Evidence: According to the Statistical Bureau Institute, IPPS involvement in the country’s overall production, which is around about 30 per cent, such a meagre amount proved to be insufficient in meeting the energy demands
- ✓ IPPs vary in their generation, distribution, and pricing compared to the conventional energy sector regulated by NEPRA
- Evidence: According to the Nationals Institute of Finance, IPPS was accused of changing charges, excessive manufacturing costs, and deceitful distribution, undoubtedly contributing to exaggerating the energy crisis
- ✓IPPs have played a significant role in decreasing the government’s liabilities and intensifying the foreign exchange risks
- Evidence: Muhammad Ali, who was the chairman of the Securities and Commission Exchange of Pakistan, found apps to be unbiased as the rate of return was 17 per cent in US dollars. This turned equal to approximately 27percent in April 2020 due to the unfavourable exchange risks
4- Countries where IPPs have proved beneficial for the progress of a country
- ✓Sub-Sahara African Region
Liz Hart, Managing Director states that, the key event in the Africa energy sector in the IPP Convention, which focused on unbiased power producers in Africa and their major role in up-lifted the country’s economic growth and showed great concern on sustainable energy solutions.
- ✓Kenya
The power station group of electricity in Kenya is involved in the process of operationalizing a power plant, a power facility that operates based on different renewable sources, e.g. tariff regulation. Kenya is definitely planning to construct new lines with the government to enhance infrastructure and fulfil the country’s demands
5- Conclusion
Answer to the Question
Introduction
Energy is an essential need of the country and plays an important role in its development. The power outages in Pakistan are indicative of the worsening economic crisis in the country, which includes a mounting debt load. The chronic blackout is due to an old power grid, less maintenance, and less investment. These power woes have not only affected industries like textiles but have also exacerbated Pakistan’s financial predicament, with total national debt exceeding $124 billion and double-digit inflation (27.38 pc in August). The economic crisis in Pakistan would dent its relationships with both Washington and Beijing. An IMF bailout is being sought, given the financial challenges to the country and its need for infrastructure. There are multiple factors behind Pakistan’s energy shortage, but the role of IPPs is at the top of the list as they failed to maintain the gap between supply and demand and lead the country towards an economic crunch. The IPPs vary in their generation, distribution, and pricing compared to the conventional energy sector regulated by NEPRA and played a significant role in decreasing the government’s liabilities. As a result, the mounting of circular debt engulfed the whole economy. Hence, addressing Pakistan’s energy crisis requires a comprehensive and sustained approach.
Understanding the term IPPs
Independent power producers are the lenders of private companies, which function to produce electricity and sell it to utility companies. The IPP has emerged as a vital component in the power sector, especially in developing countries. In addition, they have helped increase the generation capacity of electricity. USAID has highlighted the three main goals as follows: to bring in third-party investments so that the country is able to meet the soaring electricity demand without further straining its internal funds, to make electricity cheaper due to enhanced competition, and to share risks in a more efficient and favourable way.
Discuss the role of IPPs in aggravating the energy crisis in Pakistan.
3.1- Negative Role of IPPs
- ✓IPPS contributed to increasing tariffs on electricity, resulting in huge losses for WAPDA
IPPs have played a negative role by increasing tariffs on electricity, and they were applied as IPPs are unable to meet the balance between supply and demand. These issues were widely publicized in the press as various stakeholders began accusing them of corruption or bad intentions. According to the National Development Authority, currently, practicality has turned into a huge gap in the cost price of electricity. This underscores that IPPs have failed to meet the needs of the country as it is involved in the process of preferring its own revenue over the state, and the state is standing on the verge of chaos because of an energy crisis.
- ✓ IPPs have not been able to fulfil the energy needs
Ipps has not beenable to fulfil its energy needs. According to the private energy and infrastructure board, IPPS plays an important role in fulfilling global demands in Pakistan, which is approximately 30 per cent of the total output, but no proper implementation has been done. However, it is widely acknowledged that the Independent Power Producers (IPPs) played a crucial role in addressing a significant capacity limitation. Furthermore, the involvement of IPPs and private sector funding is essential in bridging the shortfall of investment within the power sector. Nevertheless, the IPP crisis poses a formidable obstacle, as it hampers policy implementation and exacerbates circular debt, ultimately resulting in financial turmoil and poverty within the nation.
- ✓The IPPs vary in their generation, distribution, and pricing compared to the conventional energy sector regulated by NEPRA
The IPPs vary in their generation, distribution, and pricing compared to the conventional energy sector regulated by NEPRA. WAPDA emphasized that IPPs graving the problem of the elevated production price of a single unit are primarily due to the excessive dependence mainly on furnace oil and diesel, which is of high cost and beyond the reach of the common man and leads to energy shortage and crisis. According to the Statistical Bureau Institute, IPPS involvement in the country’s overall production, which is around about 30 per cent, such a meagre amount proved to be insufficient in meeting the energy demands. The introduction of changes in IPPs’ agreements, localization of fuel sources, and enhancing the subsidies are crucial measures. This results in the promotion of the detrimental cycle of circular debt and does not guarantee the long-term development of the energy realm
- ✓IPPs have played a crucial role in decreasing the government’s liabilities and intensifying the foreign exchange risks
IPPs have decreased the government’s liabilities and intensified the foreign exchange risks. Muhammad Ali, who was the former chairman of the Securities and Commission Exchange of Pakistan, found apps to be unbiased as the rate of return was 17 per cent in US dollars. This turned into approximately 27 when the file was submitted in April 2020. Due to the unfavourable exchange risks, the yearly return in Pakistani rupees now exceeds 50. Owing to it, WAPDA has faced trials and challenges in fulfilling its commitments to IPPs due to difficulties in fulfilling cash payments on time as well as low collection rates from government customers, which represent 30 per cent of its total sales, resulting in decreasing the liabilities of government and increase the debt and promoting the payment clash to the IPPs.
Countries where IPPs have proved beneficial for the progress of a country
- ✓Sub-Sahara African Region
Apps are going to play a robust role in fostering the onset of renewable sources. African governments will be able to maximize the potential of IPPs by building partnerships between the public and private sectors, advancing policy incentives, and developing regulatory environments that promote private sector engagement. This will lead to economic growth and jobs and mitigate the pertinence of climate. Liz Hart, Managing Director, states that the event in the African energy sector at the IPP convention, which focused on unbiased power producers in Africa and their major role in uplifting the country’s growth, showed great concern for energy solutions and economic growth. IPPs contribute a vital initiative in meeting the gap of energy in regions where access to electricity remains a challenge; by leveraging the private sector and innovative technologies, IPPs have significantly contributed to expanding electricity access in every sphere, enhancing reliability, and fostering the energy supply mix in various African nations. The power generated by IPPs is purchased by buyers, ensuring the financial stability for both parties involved.
- ✓Kenya
The power station group of electricity in Kenya is involved in the process of operationalizing a power plant, a power facility that operates based on different renewable sources, e.g. tariff regulation. Kenya is definitely planning to construct new lines with the government to enhance infrastructure to fulfil the country’s demands and foster its GDP. Kenya’s power sector promotes growth and investment under the project“Strategy for Economic Recovery to Nurture Wealth Creation and Economic Development” Kenya has used a process known as change of theory to map the channels through which it acquires favourable outcomes of Installed power capacity of 2854MW. Thermal IPPs have provided voltage support for the local grid that provides the total energy needs of the country. Thus, the IPPs stepped in to plug the power generation gap.
Conclusion
The energy sector needs development and growth so that there will be a stable supply of energy for the economic growth of Pakistani citizens. The overreliance on any single source, such as natural gas, has put the economy of Pakistan in jeopardy regarding supply and price fluctuations. There is a strong need to diversify the energy mix for energy security. The impacts and performances of IPPs vary with the passage of time. This underscores the role of IPPs in the energy realm of countries that depend highly on energy and meet the energy needs of the entire world. Undoubtedly, 30 per cent of energy is produced by IPPs, and they have committed no required work. Hence, IPPs should be in an ardent need to amplify their policies.
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